I n t e r i m R e p o r t for the six months ended 31 December 2010

Transcription

1 Interim Report for the six months ended 31 December 2010

2 LIMITED COMPANY SHARE CAPITAL 430,551,515.5 HEAD OFFICE: PIAZZETTA ENRICO CUCCIA 1, MILAN, ITALY Registered as a Bank Parent Company of the Mediobanca Banking Group Interim Report for the six months ended 31 December 2010 (as required pursuant to Article 154-ter of the Italian Consolidated Finance Act)

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4 BOARD OF DIRECTORS Term expires RENATO PAGLIARO CHAIRMAN 2011 DIETER RAMPL DEPUTY CHAIRMAN 2011 MARCO TRONCHETTI PROVERA DEPUTY CHAIRMAN 2011 ALBERTO NAGEL CHIEF EXECUTIVE OFFICER 2011 FRANCESCO SAVERIO VINCI GENERAL MANAGER 2011 JEAN AZEMA DIRECTOR 2011 TARAK BEN AMMAR» 2011 GILBERTO BENETTON» 2011 MARINA BERLUSCONI» 2011 ANTOINE BERNHEIM» 2011 ROBERTO BERTAZZONI» 2011 VINCENT BOLLORE» 2011 ANGELO CASO» 2011 MAURIZIO CEREDA» 2011 MASSIMO DI CARLO» 2011 ENNIO DORIS» 2011 JONELLA LIGRESTI» 2011 FABRIZIO PALENZONA» 2011 MARCO PARLANGELI» 2011 CARLO PESENTI» 2011 ERIC STRUTZ» 2011 STATUTORY AUDIT COMMITTEE MARCO REBOA CHAIRMAN 2011 MAURIZIA ANGELO COMNENO STANDING AUDITOR 2011 GABRIELE VILLA»» 2011 GUIDO CROCI ALTERNATE AUDITOR 2011 UMBERTO RANGONI»»

5 C O N T E N T S page REVIEW OF GROUP OPERATIONS... 7 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheet Consolidated profit and loss account Consolidated comprehensive income Statement of changes to consolidated net equity Consolidated cash flow statement EXPLANATORY NOTES TO THE ACCOUNTS Part A - Accounting policies Part B - Notes to the consolidated balance sheet Part C - Notes to the consolidated profit and loss account Part E - Information on risks and related hedging policies Part F - Information on consolidated capital Part H - Related party disclosure Part I - Share-based payment schemes Part L - Segment reporting INDEPENDENT AUDITOR S REVIEW REPORT Annexes: Consolidated financial statements (IAS/IFRS-compliant) Mediobanca S.p.A. financial statements (IAS/IFRS-compliant) Declaration by Head of company financial reporting

6 REVIEW OF GROUP OPERATIONS The Group s results for the six months show a net profit of 262.9m, in line with the 270.1m posted at the same stage last year. Last year s result, however, was boosted by higher gains on disposals of AFS securities ( 131.1m, compared with 15.2m) and exceptionally high trading profits ( 173.3m, as against 105.4m), due to the more favourable market environment. Features worth noting include strong growth in net interest income (up from 441.7m to 531.5m) and a sharp reduction in provisions for loan losses and securities (down from 270.4m to 219.4m, and from 90.4m to 19.9m respectively), due to improving credit risk profiles and the upturn in stock market prices. Total income net of trading was up 9%, with the main items performing as follows: net interest income was up 20.3%, due to a recovery in volumes plus a reduced cost of funding in retail and private banking (up 29.5%, from 243.3m to 315m), allied to higher returns in the corporate and investment banking segment (up 3.6%, from 215.8m to 223.6m); net fee and commission income declined by 6.5%, from 284.3m to 265.9m, following a reduced contribution from corporate and investment banking (down 8.3%, from 178.5m to 163.7m), reflecting the sticky market conditions as a result of the weak economic recovery and the sovereign debt crisis affecting peripheral EU member states; profits from equity-accounted companies increased from 106.3m to 110.2m, as a result of a positive contribution from the principal investing companies (up from 105.6m to 116.7m, with RCS MediaGroup and Telco returning to profit), which offset the loss made by Pirelli & C. ( 5.7m, due to the Prelios spinoff). Operating costs continued the trend seen in recent quarters, up 3.2%, from 394.4m to 407.2m, 5.2m of which was due to staff costs (up 2.5%) and 7.6m to administrative expenses (up 4.1%). 7

7 Loan loss provisions were down 18.9%, from 270.4m to 219.4m, confirming the signs of improvement seen in the previous quarters, in the corporate segment particularly. Of the total amount for this item, 169.9m involved households (31/12/09: 182.7m), 36.9m ( 70.5m) wholesale banking, and 12.6m ( 17.2m) leasing. Provisions for financial assets also declined sharply, from 90.4m to 19.9m, 12.5m of which in respect of AFS equities. The stock market recovery led, among other things, to an increase of 40.8m in the relevant valuation reserve, 27.3m of which in respect of shares already subject to impairment charges in previous years. Turning to the individual areas of the Group s activities, corporate and investment banking showed a net profit of 144.7m ( 208.4m) following a reduction in total income from 659.7m to 477.3m, virtually all of which was attributable to the lower trading income referred to above, which declined from 263.9m to 97.2m. Retail and private banking returned to profit, earning 38m as opposed to the 26.2m loss posted last year, on higher total income (up 19.8%, from 406m to 486.2m, including due to the contribution from CheBanca!), costs stable at 249.2m, and improving loan loss provisions (down 7%, from 182.7m to 169.9m). The performance by principal investing also improved, from 87m to 105.3m, with RCS MediaGroup and Telco returning to profit and the Assicurazioni Generali group s earnings holding up well. On the balance-sheet side, there was a reduction in treasury funds, from 15bn to 11.1bn, while loans and advances to customers rose from 33.7bn to 35.1bn and the AFS fixed-income portfolio also increased, from 5.2 to 5.9bn, as did the fixed asset portfolio (from 1.5bn to 2bn). Funding was stable at 52.9bn ( 53.9bn), 10bn of which from the CheBanca! retail banking channel ( 9.6bn). Assets under management in private banking rose from 11.7bn to 12.1bn. The Group s main capital ratios remain at high levels, with the core Tier 1 ratio at 11.10%, and the total capital ratio al 14.26%. * * * 8

8 Significant events that have taken place during the six months under review include: the resolutions adopted by shareholders at the annual general meeting held on 28 October 2010 in respect of: Group staff remuneration policies which, in compliance with the new regulatory requirements in this area, include use of a new deferred remuneration equity instrument (performance shares), in connection with which an increase in the company s share capital was approved (with up to 20 million new Mediobanca shares being issued) plus the use of treasury shares owned by the Bank; amendments to the company s Articles of Association, to incorporate changes introduced by Italian Legislative Decree 27/10 in the area of shareholder rights; approval by the Board of Directors of the procedure in respect of transactions involving related parties, at a meeting held on 23 November 2010 after the Related Parties Committee (made up solely of independent Directors) had given its approval; the procedure, adopted in pursuance of Consob resolution no issued on 12 March 2010, is intended to ensure that transactions with related parties executed directly by Mediobanca or via subsidiaries are managed transparently and fairly; issuance of a subordinated, Lower Tier II loan in an amount of 750m; approval of the ICAAP procedure required by regulations in force, and disclosure of the information required under Pillar 3 of the Basel II agreements, to provide a more accurate valuation of the Group s capital solidity and exposure to risks. 9

9 CONSOLIDATED FINANCIAL STATEMENTS* The consolidated profit and loss account and balance sheet have been restated, including by business area, in the customary way to provide the most accurate reflection of the Group s operations. The results are also presented in the format recommended by the Bank of Italy as an annex, along with further details on how the various items have been restated. RESTATED PROFIT AND LOSS ACCOUNT 6 mths to 31/12/09 12 mths to 30/6/10 6 mths to 31/12/10 Y.o.Y. chg. m m m (%) Net interest income Net trading income Net fee and commission income Equity-accounted companies TOTAL INCOME 1, , , Labour costs (209.4) (396.4) (214.6) +2.5 Administrative expenses (185.0) (376.5) (192.6) +4.1 OPERATING COSTS (394.4) (772.9) (407.2) +3.2 Loan loss provisions (270.4) (516.8) (219.4) 18.9 Provisions for financial assets (90.4) (150.0) (19.9) 78.0 Other profits (losses) n.m. PROFIT BEFORE TAX Income tax for the period (124.6) (181.2) (122.2) 1.9 Minority interest (1.0) (1.3) (2.5) n.m. NET PROFIT * For a description of the methods by which data has been restated, see also the section entitled Significant accounting policies. 10

10 RESTATED BALANCE SHEET 31/12/09 30/6/10 31/12/10 m m m Assets Treasury funds 13, , ,139.5 AFS securities 7, , ,552.4 of which: fixed-income 6, , ,902.2 equities 1, , ,634.5 Fixed financial assets (HTM & LR) 1, , ,984.4 Loans and advances to customers 33, , ,102.0 Equity investments 3, , ,445.8 Tangible and intangible assets Other assets , ,125.0 of which: tax assets Total assets 60, , ,105.3 Liabilities and net equity Funding 52, , ,905.7 of which: debt securities in issue 35, , ,584.9 retail deposits 7, , ,950.8 Other liabilities 1, , ,061.1 of which: tax liabilities Provisions Net equity 6, , ,692.3 of which: share capital reserves 5, , ,152.7 minority interest Profit for the period Total liabilities and net equity 60, , ,105.3 Tier 1 capital 5, , ,109.4 Regulatory capital 6, , ,851.5 Tier 1 capital/risk-weighted assets ponderate 11. % 11.09% 11.10% Regulatory capital/risk-weighted assets 12.86% 12.97% 14.26% No. of shares in issue (m)

11 PROFIT-AND-LOSS/BALANCE-SHEET DATA BY DIVISION 31 DECEMBER 2010 Profit-and-loss data Corporate & Investment Banking Principal Investing Retail & Private Banking Group m m m m Net interest income (3.9) Net trading income Net fee and commission income Equity-accounted companies (7.2) TOTAL INCOME ,034.0 Labour costs (124.1) (2.8) (97.4) (214.6) Administrative expenses (46.9) (1.2) (151.8) (192.6) OPERATING COSTS (171.0) (4.0) (249.2) (407.2) Loan loss provisions (49.5) (169.9) (219.4) Provisions for other financial assets (15.0) (4.5) (0.4) (19.9) Other gains (losses) PROFIT BEFORE TAX Income tax for the period (94.7) 1.0 (28.7) (122.2) Minority interest (2.5) (2.5) NET PROFIT Cost/income ratio(%) Balance-sheet data Treasury funds 12, , ,139.5 AFS securities 6, , ,552.4 Fixed financial assets (HTM & LR) 1, , ,984.4 Equity investments , ,445.8 Loans and advances to customers 26, , ,102.0 of which: to Group companies 4, ,293.8 Funding (44,963.7) (259.8) (21,183.2) (52,905.7) Risk-weighted assets 40, , , ,044.7 No. of staff 923 2,518 * 3,320 * Includes 121 staff employed by Banca Esperia pro-forma, not included in the Group total. 1) Divisions comprise: CIB (Corporate and investment banking): comprises corporate and investment banking, including leasing, plus the Group s trading investments. The companies which form part of this division are Mediobanca, Mediobanca International, MB Securities USA, Consortium, Prominvestment, SelmaBipiemme Leasing, Palladio Leasing and Teleleasing; Principal investing: comprises the Group s shareholdings in Assicurazioni Generali, RCS MediaGroup and Telco, plus stakes acquired as part of merchant banking activity and investments in private equity funds; Retail and private banking: businesses targeting retail customers via consumer credit products, mortgages, deposit accounts, private banking and fiduciary activities. The companies which make up this division are: Compass, CheBanca!, Cofactor, Futuro, Compass RE and Creditech (consumer credit); and Compagnie Monégasque de Banque, Spafid and Prudentia Fiduciaria, plus 50% of Banca Esperia pro-forma (private banking). 2) Sum of divisional data differs from Group total due to: Banca Esperia being consolidated pro-rata (50%) rather than equity-accounted; adjustments/differences arising on consolidation between business areas ( 1.1m and 21.9m as at 31 December 2009 and 31 December 2010 respectively), the latter includes 21.5m in net trading income on intra-group trades in the retail segment. 12

12 31 DECEMBER 2009 Corporate & Investment Banking Principal Investing Retail & Private Banking Group m m m m Profit-and-loss data Net interest income (5.2) Net trading income Net fee and commission income Equity-accounted companies (0.2) TOTAL INCOME ,145.3 Labour costs (113.8) (2.8) (97.6) (209.4) Administrative expenses (43.9) (1.3) (156.9) (185.0) OPERATING COSTS (157.7) (4.1) (254.5) (394.4) Loan loss provisions (87.7) (182.7) (270.4) Provisions for other financial assets (82.6) (6.6) (0.9) (90.4) Other gains (losses) PROFIT BEFORE TAX (26.5) Income tax for the period (122.2) (2.7) 0.3 (124.6) Minority interest (1.1) (1.0) NET PROFIT (26.2) Cost/income ratio(%) Balance-sheet data Treasury funds 14, , ,502.7 AFS securities 5, , ,807.1 Fixed financial assets (HTM & LR) 1, , ,334.0 Equity investments , ,037.7 Loans and advances to customers 24, , ,468.9 of which: to Group companies 3,427.4 Funding (43,068.8) (259.8) (19,331.3) (52,904.1) Risk-weighted assets 39, , , ,389.4 No. of staff 853 2,450 * 3,196 * Includes 107 staff employed by the Esperia group pro-forma not included in the Group total. 13

13 BALANCE SHEET The main balance-sheet items, of which Mediobanca contributes just over one-half, performed as follows during the six months under review (comparative data as at 30 June 2010): Funding this item fell slightly, by 1.8%, from 53,852.3m to 52,905.7m, following slight reductions in debt securities in issue (from 35,193.3m to 34,584.9m) and bank debt (from 9,097.9m to 8,370m), partly offset by an increase in the CheBanca! retail component (up 4.1%, from 9,561.1m to 9,950.8m). A 750m subordinated (Lower Tier II) bond was issued during the period. Loans and advances to customers these rose by 4.2%, from 33,701.5m to 35,102m, chiefly due to a recovery in the corporate and retail segments (up 6.9% and 2.6% respectively); conversely, leasing and private banking showed reductions, of 1.4% and 4.6% respectively. 30/6/10 31/12/10 Change m m % Corporate and investment banking... 21, , of which: leasing... 4, , Retail and private banking... 12, , of which: consumer credit... 8, , mortgage loans... 3, , private banking TOTAL LOANS AND ADVANCES TO CUSTOMERS... 33, , The contributions from the various business segments remained stable, with CIB (i.e. corporate lending, structured finance and leasing activities) accounting for 63% of the total loan book and retail finance (mortgage lending and consumer credit) 35%. In a scenario that remains critical for the real estate industry (which affects mortgage and leasing businesses), there was an 11.4% reduction in impaired assets (non-performing, sub-standard, restructured and overdue items), from 803.2m to 711.8m, on the back of an improvement in the corporate segment ( 161.5m, compared with 243.6m last year) and consumer credit ( 192.3m, against 238.2m); the coverage rate is still above 50% and asset quality remains satisfactory: impaired assets account for just 0.91% (30/6/10: 1.47%) of total loans in the large corporate 14

14 segment, 4.5% (4.1%) in leasing, 2.3% (2.9%) in consumer credit and 2.7% (2.5%) in mortgage lending. Non-performing accounts represent 0.58% (0.56%) of total loans, up slightly since the balance-sheet date due to the trend in the leasing and mortgage segments. At the reporting date there were a total of seven significant exposures to groups of customers (including market risk and equity investments) bond, i.e. above 10% of regulatory capital (four fewer than at 30 June 2010), corresponding at weighted values to a total of 10,610.6m ( 11,306.3m). Equity investments these increased in value from 3,348m to 3,445.8m, following profit for the period of 110.2m ( 105.1m of which for Assicurazioni Generali, 4.6m for RCS MediaGroup and 7.3m for Telco, and net of the 5.7m loss for Pirelli), against a 2.9m reduction in the valuation reserves. Based on share prices at 31 December 2010, the portfolio showed a net surplus of 358.9m ( 455.3m, which rises to 744.6m based on current prices). Percentage shareholding* Book value Market value as at 31/12/10 Gain (loss) ( m) LISTED EQUITY INVESTMENTS Assicurazioni Generali , , RCS MediaGroup. ordinary (80.5) Pirelli & C. S.p.A Gemina (101.4) OTHER EQUITY INVESTMENTS Telco Banca Esperia Burgo Group Athena Private Equity class A Fidia , , ,445.8 * Percentage of entire share capital. 15

15 In terms of earnings, the investments have performed in line with the assumptions underlying the impairment tests carried out at 30 June This trend is confirmed by the stock market prices, which for all the investments have shown increases during the six months under review. Therefore none of the investments was subject to impairment testing at end- December. Fixed financial assets this portfolio brings together the Group s holdings in securities held to maturity, worth 1,253.3m ( 720.7m), and unlisted debt securities (recognized at cost), worth 731.1m ( 734.7m). Debt securities held to maturity increased during the period, as a result of market purchases ( 60.9m) and bonds transferred from the AFS portfolio ( 473m). Other movements for the six months may be summarized as follows: redemptions of 7.6m, upward adjustments of to reflect amortized cost totalling 10.1m, and writedowns to the profit and loss account of 7.3m. None of the other assets shows further signs of impairment, despite the portfolio reflecting an implicit loss at the reporting date of 26.3m ( 22.4m last year). Asset-backed securities included under this heading continue to refer to Italian domestic assets only, and increased from 326.3m to 332m (cf. Part E, section C of the Notes to the Accounts). AFS securities this portfolio is made up of debt securities totalling 5,902.2m ( 5,248.6m), equities worth 1,634.5m ( 1,538.8m), and stock units in funds held by Compagnie Monégasque de Banque worth 15.7m ( 38.3m). The debt securities component saw purchases worth over 2.1bn (offset by a reduction in the trading book), disposals and redemptions totalling 0.9bn, and the transfers to the fixed assets portfolio referred to above. At the period-end, upward adjustments to reflect amortized cost totalled 6.5m, while downward adjustments to reflect fair value amounted to over 126m. Asset-backed securities included under this heading increased from 42.5m to 56.1m. Movements on the equity side (which also includes holdings in bonds convertible into shares) consist of 91.9m in net investments (more than half of which relating to unlisted shares) and 32.4m in upward adjustments to reflect fair value at the reporting date, 27.3m of which in connection with securities subject to impairment charges last year. Adjustments of 2.6m were taken to the profit and loss account at the reporting date, in respect of equities previously subject to impairment, plus charges of 9.5m in respect of the unlisted securities portfolio, here again involving investments previously subject to impairment. 16

16 Percentage shareholding* Book value at 31/12/10 Adjustments to fair value Impairment recognized in P&L Total AFS reserve Sintonia S.A Unicredit CASHES (9.0) (26.2) Delmi S.p.A (12.8) Santé S.A (0.7) Italmobiliare Other listed shares (2.6) (14.6) Other unlisted shares (8.8) 55.9 TOTAL SHARES... 1, (12.1) 20.6 * First figure refers to percentage of shares held in respective category; second figure refers to percentage of total share capital held. The valuation reserve for this portfolio overall remained in negative territory, at minus 132.8m (compared with 47.1m last year), representing the balance between the positive equity reserve of 20.6m (minus 14.7m) and the negative debt security reserve (minus 154.5m, compared with minus 32.6m), with this component in particular being hit by the sovereign debt crisis; other assets contributed 1.1m ( 0.2m). Treasury funds these declined from 14,976m to 11,139.5m and include cash and cash equivalents worth 534.9m ( 722.3m), fixedincome securities totalling 5,772.9m (down from the 9,185.4m reported at the balance-sheet date, due to assets being reallocated to the banking book), 2,268.3m in equities and fund stock units (up on the 1,512.4m at the balance-sheet date, due to increased client trading), 432.1m ( 430.8m) in downward adjustments to derivatives contracts, and 2,995.5m ( 3,986.7m) in net applications of funds, such as repos, bank deposits, etc. Asset-backed securities accounted for under this heading reduced from 75.6m to 62.3m. Tangible and intangible assets these fell from 762.6m to 756.2m, after depreciation and amortization charges for the period totalling 20.8m ( 2.9m of which in respect of assets deriving from the purchase price allocation process for Linea). This includes investments made by Mediobanca ( 5.1m, due to an upgrade of the Bank s IT systems) and Seteci ( 4.5m, in connection with plans to refurbish and extend the property used by the company). Goodwill and brands continued to be carried at 365.9m and 6.3m respectively. 17

17 Provisions this item consists of the provision for liabilities and charges amounting to 156.5m ( 156.3m), and the staff severance indemnity provision totalling 26.8m ( 27.3m), both of which fell due to withdrawals during the period. Net equity net equity rose by 253m, from 6,330.3m to 6,583.3m, after allocation of the 2010 profit not distributed to shareholders ( 257.4m), net of the valuation reserves ( 7m), including those arising on consolidation as a result of using the equity method. The AFS securities portfolio valuation reserve declined by over 63m (from minus 22.6m to minus 86.1m), while the cash flow hedges reserve improved by over 55m (from minus 99.5m to minus 44m), and the equity-accounted companies reserve decreased from 162.1m to 161m. PROFIT AND LOSS ACCOUNT Net interest income this item rose from 441.7m to 531.5m, largely reflecting the positive trend in retail finance, up 29.5% (from 243.3m to 315m). This was due on the one hand to CheBanca! (up 38m), where the cost of funding has gradually reduced as a result of deposits being renewed at lower interest rates; and on the other, to consumer credit (up 32.1m), which was boosted by an upturn in volumes and the reduced cost of funding. The net interest income trend was also positive in corporate finance, rising 3.6%, from 215.8m to 223.6m, due to the higher stock of loans (which was up 5.1%). Net trading income in addition to 105.4m in net trading income (31/12/09: 173.3m), this heading also includes 15.2m ( 131.1m) in gains on disposal of AFS securities and dividends worth 5.8m ( 8.6m). Despite the market turmoil caused by the sovereign debt crisis, the trading result posted in the period was positive (up 33.4m year-on-year), divided equally between the fixed-income (with 13.4m in the second quarter and 68.3m for the half-year) and equity components ( 20m and 37.1m respectively). 6 mths to 31/12/09 6 mths to 31/12/10 m m Dealing profits Mark-to-market as at reporting date (147.9) Dividends NET TRADING INCOME

18 Net fee and commission income this item fell by 6.5%, from 284.3m to 265.9m, chiefly due to a reduced contribution from corporate and investment banking, affected primarily by the slowdown in capital market business ( 32.2m, versus 40m); commissions from consumer credit were stable, at 79.3m ( 80.5m), whereas private banking continues to be weak, with net fee and commission income of 18.8m ( 22.6m) in part due to the absence of performance fees. Operating costs these were up 3.2%, from 394.4m to 407.2m, and consist of: labour costs amounting to 214.6m ( 209.4m); these include 3.9m ( 5.5m) in emoluments paid to directors (unchanged) and 4.5m ( 2.6m) in stock option costs; the increase reflects strengthening in the Group s headcount during the six months, from 3,196 to 3,320 staff; sundry costs and expenses amounting to 192.6m ( 185m), including 20.8m ( 19.9m) in depreciation and amortization, and administrative expenses totalling 169.9m ( 166.3m), made up as follows: 6 mths to 31/12/09 6 mths to 31/12/10 m m Legal, tax and other professional services Bad debt recovery Marketing and communication Rent and property maintenance charges EDP Financial information subscriptions Banking services, collection and payment charges Operating expenses Other labour costs Others Direct and indirect taxes (net of withholding tax) TOTAL Loan loss provisions the reduction in this item bears out the gradual improvement in all the Group s areas of activity: provisions for consumer 19

19 finance service business fell from 182.7m to 169.9m, as did those for the corporate loan book, from 87.7m to 49.5m. This is the sixth quarter in a row that loan loss provisions have fallen. Provisions for financial assets this item includes 7.4m in respect of bonds, 2.6m in adjustments to equities subject to impairment charges in previous years, to reflect fair value, and 9.9m to cover long-term losses in the value of holdings in unlisted equities and private equity and venture capital fund stock units. 20

20 BALANCE-SHEET/PROFIT-AND-LOSS DATA BY DIVISION A review of the Group s performance in its main areas of operation is provided below, in the usual format. Corporate and investment banking (wholesale banking and leasing) 6 mths to 31/12/09 12 mths to 30/6/10 6 mths to 31/12/10 Y.o.Y. chg. m m m (%) Profit-and-loss data Net interest income Net trading income Net fee and commission income Equity-accounted companies (7.2) n.m. TOTAL INCOME , Labour costs (113.8) (211.3) (124.1) +9.1 Administrative expenses (43.9) (91.8) (46.9) +6.8 OPERATING COSTS (157.7) (303.1) (171.0) +8.4 Loan loss provisions (87.7) (156.0) (49.5) 43.6 Provisions for financial assets (82.6) (135.8) (15.0) 81.8 Other profits (losses) 0.1 n.m. PROFIT BEFORE TAX Income tax for the period (122.2) (166.7) (94.7) 22.5 Minority interest (1.1) (1.4) (2.5) n.m. NET PROFIT Cost/income ratio (%) mths to 31/12/09 12 mths to 30/6/10 6 mths to 31/12/10 m m m Treasury funds 14, , ,790.9 AFS securities 5, , ,242.5 Fixed assets (HTM & LR) 1, , ,983.6 Equity investments Loans and advances to customers 24, , ,515.1 of which to Group companies 3, , ,293.8 Funding (43,068.8) (44,921.7) (44,963.7) 21

21 Corporate and investment banking 31 December 2010 Wholesale Leasing Total m m m Net interest income Net trading income Net fee and commission income Equity-accounted companies (7.2) (7.2) TOTAL INCOME Labour costs (114.7) (9.4) (124.1) Administrative expenses (41.4) (5.5) (46.9) OPERATING COSTS (156.1) (14.9) (171.0) Loan loss provisions (36.9) (12.6) (49.5) Provisions for financial assets (15.0) (15.0) Other profits (losses) PROFIT BEFORE TAX Income tax for the period (89.9) (4.8) (94.7) Minority interest (2.5) (2.5) NET PROFIT Cost/income ratio (%) Other assets 21, ,394.4 Loans and advances to customers 22, , ,515.1 of which to Group companies 4, ,293.8 New loans n.d No. of staff

22 Corporate and investment banking 31 December 2009 Wholesale Leasing Total m m m Net interest income Net trading income Net fee and commission income Equity-accounted companies TOTAL INCOME Labour costs (104.7) (9.1) (113.8) Administrative expenses (37.5) (6.4) (43.9) OPERATING COSTS (142.2) (15.5) (157.7) Loan loss provisions (70.5) (17.2) (87.7) Provisions for financial assets (82.6) (82.6) Other profits (losses) PROFIT BEFORE TAX Income tax for the period (118.8) (3.4) (122.2) Minority interest (1.1) (1.1) NET PROFIT Cost/income ratio (%) Other assets 21, ,432.0 Loans and advances to customers 20, , ,821.8 of which to Group companies 3, ,427.4 New loans No. of staff

23 This division reported a net profit of 144.7m. The reduction compared to the 208.4m at the same stage last year is largely attributable to lower net trading income of 97.2m ( 263.9m), reflecting a much less favourable market scenario than twelve months previously, and lower gains on disposals of AFS equities (last year s result was boosted by the disposal of a tranche of the Bank s shares in Fiat, which yielded a gain of over 70m). The reduction in total income, from 659.7m to 477.3m, reflects the following performances by individual items: net interest income rose by 3.6%, from 215.8m to 223.6m, due solely to the contribution from wholesale banking (which increased from 178.8m to 187.5m) on the back of favourable repricing of assets; net interest income earned from leasing operations was stable at 36.1m ( 37m); net trading income fell from 263.9m to 97.2m, due to lower gains on disposals of AFS securities totalling 3.9m (compared with 84.6m last year), and dealing profits virtually halving, from 170.8m to 87.5m, in line with the up-and-down movement in credit spreads which narrowed in the autumn of 2009 before widening sharply at the end of the second quarter; net fee and commission income declined from 178.5m to 163.7m, reflecting the ongoing market uncertainty for corporate and investment banking. The 8.4% increase in costs, from 157.7m to 171m, reflects higher labour costs of 124.1m ( 113.8m) due to strengthening the headcount both in Italy and elsewhere, and the related increase in administrative expenses, from 43.9m to 46.9m. Loan loss provisions of 49.5m show a sharp reduction from last year s 87.7m, due entirely to corporate business ( 36.9m, versus 70.5m), with two sub-standard accounts having been repaid during the six months (with no further losses of value). Provisions for other financial assets of 15m involved adjustments to reflect fair value for shares already subject to impairment charges ( 2.6m) and long-term reductions in value for unlisted shares and bonds totalling 12.4m. Lending and structured finance lending to corporates, excluding Group companies, increased by 6.9%, from 16,599.6m to 17,741.7m, 24

24 showing the first signs of a recovery in demand. Just over one-third of the Group s total exposure was to non-domestic customers, in particular those based in Spain (9.7% of total loans disbursed), France (8.6%) and German (6.2%). Overall this area generated 40% of the Group s revenues from wholesale banking. Funding and treasury accounts funding, virtually stable at 44,963.7m ( 44,921.7m), consists of: 37,956.1m ( 38,625.1m) in debt securities in issue, 253.9m ( 798.4m) of which in short-term funding (CDs and commercial paper); 3,772.2m ( 3,099.9m) in deposits and current accounts, and 3,235.4m ( 3,182.7m) in other forms of funding chiefly attributable to leasing activity. Treasury accounts consist of 239.4m ( 264.2m) in cash and cash equivalents, 5,562.6m ( 9,002.1m) in debt securities, 1,962.6m ( 1,214.2m) in equities, 413.7m in upward adjustments to derivatives contracts ( 367.5m), and 5,440m ( 6,249.3m) in net short-term applications of funds. This area generated approximately 37% of the Group s wholesale banking revenues. Fixed financial assets and AFS bonds these include financial assets held to maturity totalling 1,252.6m ( 720m), unlisted debt securities (recognized at cost) worth 731.1m ( 734.6m), and AFS bonds amounting to 4,751.2m ( 3,727.3m). During the period under review there were purchases totalling 1,931m (almost exclusively in the AFS segment), disposals and redemptions worth 297.7m, the transfer of 473m of AFS bonds to the held-to-maturity portfolio, adjustments of 20.3m to reflect amortized cost, writedowns to the profit and loss account in an amount of 7.4m, and downward adjustments to fair value totalling 101m. The turmoil on financial markets as a result of the sovereign debt crisis affecting peripheral EU member states impacted negatively on the AFS reserve, which went from minus 32.3m at the balance-sheet date to minus 136.1m, and the implicit loss on this portfolio rose from 40.4m to 42.9m. Equity investments and AFS shares for operating purposes this portfolio brings together the Group s holdings in equities and convertible bonds held as available for sale, plus its investments in Gemina, Pirelli & C. and Burgo Group. As at 31 December 2010, the portfolio was worth 1,868.7m ( 1,792.9m), after purchases totalling 153.9m, disposals of 85.4m yielding gains of 7.7m (including 3.2m in reserves accrued in 25

25 previous years), writedowns for impairment to AFS equities totalling 7.6m, upward adjustments of 29.2m to reflect fair value at the reporting date, and downward, pro-rata adjustments to net equity amounting to 10.8m ( 7.2m of which was taken through the profit and loss account) following the removal of 9.5m in dividends collected from Pirelli & C. The net equity reserve for AFS shares returned to positive territory at 19.2m (compared with minus 13.2m at 30 June 2010). Investment banking the value of advisory mandates executed by Mediobanca increased during the six months under review, from 23bn to 26bn, resulting in 29% growth in revenues generated from this activity, from 43m to 56m. International customers and cross-border transactions contributed over 60% of this result. Conversely, capital market activity slowed, ECM in particular, with placements totalling 4.2bn as opposed to 13.9bn. Overall this area generated more than 20% of the Group s revenues from wholesale banking. Leasing a profit of 2.8m was made from this business during the six months under review, representing an improvement on the 0.7m posted at the same stage last year, due to a reduction in loan loss provisioning, from 17.2m to 12.6m. Revenues were more or less stable, at 37.6m (compared with 37.9m), as were operating costs at 14.9m ( 15.5m). Amounts leased to customers declined from 4,544.7m to 4,479.6m, on new loans for the period totalling 586.8m ( 576.5m), reflecting the slowdown in demand. 26

26 Principal investing 6 mths to 31/12/09 12 mths to 30/6/10 6 mths to 31/12/10 Y.o.Y. chg. m m m (%) Profit-and-loss data Net interest income (5.2) (9.6) (3.9) 25.0 Net trading income n.m. Net fee and commission income n.m. Equity-accounted companies TOTAL INCOME Labour costs (2.8) (5.5) (2.8) n.m. Administrative expenses (1.3) (2.6) (1.2) 7.7 OPERATING COSTS (4.1) (8.1) (4.0) 2.4 Provisions for financial assets (6.6) (12.2) (4.5) 31.8 PROFIT BEFORE TAX Income tax for the period (2.7) NET PROFIT mths to 31/12/09 12 mths to 30/6/10 6 mths to 31/12/10 m m m AFS securities Equity investments 2, , ,010.3 This division s results for the six months show an increased profit of 105.3m (31/12/09: 87m), following a return to profit by RCS MediaGroup ( 4.6m, compared with a 4.7m loss last year) and Telco ( 7.3m against a 4.2m loss), and despite a slight reduction in the contribution from Assicurazioni Generali, from 116.4m to 105.1m. The book value of the investments increased by 118.1m, almost all of which due to pro-rata profits for the period. The remainder of the portfolio, which consists of investments made as part of merchant banking activity and in private equity funds, increased from 114.8m to 133.9m, after investments worth 22.3m, adjustments of 4.5m taken through the profit and loss account, and 1.3m in adjustments to reflect fair value. 27

27 Retail and private banking 6 mths to 31/12/09 12 mths to 30/6/10 6 mths to 31/12/10 Y.o.Y. chg. m m m (%) Profit-and-loss data Net interest income Net trading income Net fee and commission income Equity-accounted companies (0.2) (0.3) n.m. TOTAL INCOME Labour costs (97.6) (193.1) (97.4) 0.2 Administrative expenses (156.9) (311.6) (151.8) 3.3 OPERATING COSTS (254.5) (504.7) (249.2) 2.1 Loan loss provisions (182.7) (360.8) (169.9) 7.0 Provisions for financial assets (0.9) (1.9) (0.4) 55.6 Other profits (losses) n.m. PROFIT BEFORE TAX (26.5) (17.6) 66.7 n.m. Income tax for the period 0.3 (14.0) (28.7) n.m. NET PROFIT (26.2) (31.6) 38.0 n.m. 6 mths to 31/12/09 12 mths to 30/6/10 6 mths to 31/12/10 m m m Treasury funds 3, , ,212.6 AFS securities 3, , ,065.6 Fixed assets (HTM & LR) 1, , ,555.5 Equity investments Loans and advances to customers 12, , ,894.7 Funding (19,331.3) (20,999.9) (21,183.2) This division returned to profit during the period under review, with a bottom line of 38m, compared with the 26.2m loss reported at the same stage last year, due to an increase in total income (up 19.8%, from 406m to 486.2m), cost savings (down 2.1%, from 254.5m to 249.2m) and lower loan loss provisions (down 7%, from 182.7m to 169.9m). Revenues were boosted by higher net interest income (up 29.5%, from 243.3m to 315m), on the back of healthy contributions from all three segments, and higher net trading income of 49m ( 37.2m) generated by 28

28 CheBanca! as part of treasury management. The cost savings were achieved by CheBanca! and Compagnie Monégasque de Banque, and offset the slight, 2m increase in consumer credit costs due to strengthening the headcount. The reduction in loan loss provisions, from 182.7m to 169.9m, was attributable solely to consumer credit operations (down 10.3%, from 172.3m to 154.5m), while for mortgage loans provisioning was higher than for the equivalent period last year, up from 9.1m to 15m, but still at the same levels seen in the last four quarters. A breakdown of this division s results by business segment is provided below: Retail and private banking 31 December 2010 Consumer credit Retail banking Private banking Total m m m m Net interest income Net trading income Net fee and commission income Equity-accounted companies TOTAL INCOME Labour costs (41.4) (28.5) (27.5) (97.4) Administrative expenses (76.5) (61.9) (13.4) (151.8) OPERATING COSTS (117.9) (90.4) (40.9) (249.2) Loan loss provisions (154.5) (15.0) (0.4) (169.9) Provisions for financial assets (0.1) (0.3) (0.4) Other profits (losses) PROFIT BEFORE TAX 68.5 (15.3) Income tax for the period (28.8) 0.6 (0.5) (28.7) NET PROFIT 39.7 (14.7) Cost/income ratio (%) 34.6 n.m Equity investments Other financial assets , , ,833.7 Loans and advances to customers 8, , ,894.7 New loans 2, ,589.0 No. of branches No. of staff 1, ,518 29

29 Retail and private banking 31 December 2009 Consumer credit Retail banking Private banking Total m m m m Net interest income Net trading income Net fee and commission income Equity-accounted companies (0.2) (0.2) TOTAL INCOME Labour costs (39.6) (30.6) (27.4) (97.6) Administrative expenses (76.3) (62.7) (17.9) (156.9) OPERATING COSTS (115.9) (93.3) (45.3) (254.5) Loan loss provisions (172.3) (9.1) (1.3) (182.7) Provisions for financial assets (0.9) (0.9) Other profits (losses) PROFIT BEFORE TAX 21.8 (65.1) 16.8 (26.5) Income tax for the period (16.0) NET PROFIT 5.8 (48.8) 16.8 (26.2) Cost/income ratio (%) 37.4 n.m Equity investments Other financial assets , , ,923.7 Loans and advances to customers 8, , ,104.4 New loans 1, ,316.2 No. of branches No. of staff 1, ,450 30

30 Turning now to the individual sectors, consumer credit reported a 10% increase in revenues, from 310m to 341m, on higher net interest income (up from 225.4m to 257.5m) and fees more or less in line with last year ( 83.3m, compared with 84.8m). The increase in costs, from 115.9m to 117.9m, reflects a small contractual increase in the cost of labour and upgrades to the facilities (labour costs up 1.8m). Net profit increased, from 5.8m to 39.7m, on lower loan loss provisions (down from 172.3m to 154.5m) reflecting the improved risk profile of the portfolio confirmed by the reduction in impaired assets (from 238.2m to 192.3m, or from 2.89% to 2.26% of the loan book). At the same time loans and advances to customers for the six months were up 2.5%, from 8,271m to 8,475.8m, on new loans of 2,205.5m for the period, up 17.7% year-on-year ( 1,873.2m). Retail banking activity (CheBanca!) showed a net loss of 14.7m, lower than the 48.8m loss recorded one year previously due to an increase in revenues, from 37.3m to 90.1m, on higher net interest income ( 43.4m, against 5.4m) and gains on disposals ( 43.2m, compared with 29.2m). Operating costs decreased, from 93.3m last year to 90.4m, helped by the French mortgage lending operations closing from 1 January The cost of risk increased, from 9.1m to 15m, albeit in line with the average for the last four quarters, while impaired assets grew 90.2m to 100.7m. As at end-december, funding raised from the retail channel totalled 9,950.8m, up 4.1% since the balance-sheet date ( 9,561.1m). Loans and advances to customers also increased, from 3,545.8m to 3,698.8m, while new loans for the period were lower, at 383.5m ( 443m). Private banking showed a profit of 13m, down from the 16.8m reported last year (which included one-off gains of 5.5m). Revenues decreased, from 58.7m to 55.1m, on lower trading income ( 5.6m, versus 8m), while the downturn in fees (from 38.2m to 35.4m) was offset by the rise in net interest income, from 12.5m to 14.1m. Gross operating profit, net of one-off items, grew from 11.3m to 13.5m, in part due to lower operating costs and provisions for loan losses and securities ( 40.9m compared with 45.3m, and 0.7m compared with 2.2m respectively). Assets under management on a discretionary/nondiscretionary basis at the reporting date totalled 12.1bn ( 11.7bn), 5.7bn of which was attributable to CMB (unchanged) and 6.4bn ( 6bn) to Banca Esperia. 31

31 * * * Private banking 31 December 2010 CMB Banca Esperia 50% Other Total PB m m m m Net interest income Net trading income 5.7 (0.2) Net fee and commission income TOTAL INCOME Labour costs (15.0) (11.0) (1.5) (27.5) Administrative expenses (8.7) (4.3) (0.4) (13.4) OPERATING COSTS (23.7) (15.3) (1.9) (40.9) Loan loss provisions (0.4) (0.4) Provisions for financial assets (0.3) (0.3) Other profits (losses) PROFIT BEFORE TAX Income tax for the period (0.2) (0.3) (0.5) NET PROFIT Cost/income ratio (%) 66.2 n.m Assets under management 5, ,366.0 n.a. 12,078.0 Securities held on a trustee basis n.a. n.a. 1, ,

32 Private banking 31 December 2009 CMB Banca Esperia 50% Other Total PB m m m m Net interest income Net trading income Net fee and commission income TOTAL INCOME Labour costs (14.9) (10.4) (2.1) (27.4) Administrative expenses (11.6) (5.5) (0.8) (17.9) OPERATING COSTS (26.5) (15.9) (2.9) (45.3) Loan loss provisions (1.2) (0.1) (1.3) Provisions for financial assets (0.9) (0.9) Other profits (losses) PROFIT BEFORE TAX 17.1 (0.9) Income tax for the period (0.1) 0.3 (0.2) NET PROFIT 17.0 (0.6) Cost/income ratio (%) 66.1 n.m Assets under management 5, , ,864.0 Securities held on a trustee basis n.a. n.a. 1, ,

33 REVIEW OF GROUP COMPANY PERFORMANCES MEDIOBANCA In the six months ended 31 December 2010, Mediobanca earned a net profit of 130.1m, down on the 167.1m reported at the same stage last year, which, however, was boosted by unusually high net trading income of ( 278.8m) in a particularly favourable market scenario. Total income thus fell from 603.9m to 432.6m, with the main items performing as follows: net interest income rose 8.8%, from 155.4m to 169.1m, on higher returns; net trading income decreased, from 278,8 to 101m, due to lower gains on disposal of AFS securities of 11.5m ( 107m) and dealing profits (down from 171.8m to 89.4m); net fee and commission income fell by 9.8% to reach 153m ( 169.7m), due to a lower contribution from capital market activity. The increase in operating costs (up 9.6%, from 146.9m to 161m) was spread between labour costs (up 9.5m) and administrative expenses (up 4.6m), reflecting expansion in Mediobanca s investment banking activities outside Italy. Loan loss provisions stood at 37m, a considerable improvement on the 70.2m set aside for the first six months of last year, and in line with the trend reported in recent quarters. Provisions for other financial assets also fell from last year, from 106.7m to 19.5m, 12.1m in respect of AFS shares (to add to the impairment charges booked in previous years) and 7.4m in respect of bonds held to maturity and recognized at cost. With regard to the main balance-sheet items: funding increased slightly by 340.6m, from 40,737.6m to 41,078.2m, due mostly to borrowings from banks, while debt securities in issue remained stable at 36,241.6m (30/6/10: 36,150.3m); issuance activity during the period included a 750m subordinated Lower Tier II bond; 34

34 loans and advances to customers increased by 8.6%, from 20,194.7m to 21,926m; loans to Group companies rose from 7,642m to 8,077.3m; equity investments remained stable at 2,828.4m; market prices as at end-december 2010 reflect a surplus of fair value over book value of 1,678.8m ( 2,036.6m based on current prices); fixed financial assets grew from 1,454.5m to 1,983.6m, due mostly to the transfer of 473m of securities from the AFS portfolio; the implicit loss on this item, based on prices and holdings as at the reporting date, totalled 42.9m ( 40.4m); AFS securities rose from 5,237.1m to 6,376.5m, and comprise 4,751.2m ( 3,727.3m) in debt securities, 1,625.2m ( 1,509.9m) in equities and convertible bonds. The increase in debt securities is due to market purchases worth over 1.8bn, net of 290.2m in disposals, the asset transfer referred to above and downward value adjustments to reflect fair value at the reporting date ( 101m). The equities also grew during the period, as a result of net investments totalling 90.8m, plus 30.7m in upward value adjustments to reflect fair value at the periodend net of 12.1m in writedowns; treasury funds totalled 13,068,7m ( 16,241.4m) and include 201.2m ( 218.2m) in cash and cash equivalents, 7,355.4m ( 9,962.4m) in securities, 978.5m in downward valuations of derivative contracts (compared with 568.3m in positive valuations), and 6,490.6m ( 6,629.1m) in short-term funding; the Bank s net equity of 4,741.8m ( 4,675.5m) includes: share capital amounting to 430.6m, valuation reserves totalling 72.9m, and other reserves and retained earnings amounting to 4,357.1m. * * * With reference to the claims made against Mediobanca, jointly with the other parties involved in what is alleged to be their failure to launch a full takeover bid for La Fondiaria in 2002, a total of thirteen are still 35

35 pending for damages amounting to 100m. The present status of these claims is as follows: the court of appeals in Milan has ruled in favour of Mediobanca on five claims, three of which rulings have been challenged in the Court of Cassation; the court of Milan has ruled against Mediobanca on seven claims in the first instance, all of which have already been appealed; the court of Florence has ruled in favour of Mediobanca in the first instance on one claim, which has been appealed by the plaintiff. * * * 36

36 RESTATED PROFIT AND LOSS ACCOUNT* 6 mths ended 31/12/09 12 mths ended 30/6/09 6 mths ended 31/12/10 Y.o.Y. chg. m m m % Net interest income Net trading income Net fee and commission income Dividends from equity investments n.m. TOTAL INCOME Labour costs (107.8) (197.3) (117.3) +8.8 Administrative expenses (39.1) (83.1) (43.7) OPERATING COSTS (146.9) (280.4) (161.0) +9.6 Loan loss provisions (70.2) (113.3) (37.0) 47.3 Provisions for other financial assets (106.7) (165.3) (19.5) 81.7 Other profits (losses) (0.2) n.m. PROFIT BEFORE TAX Income tax for the period (113.0) (147.0) (85.0) 24.8 NET PROFIT * The financial statements are also reported in accordance with the recommendations made by the Bank of Italy in the annex hereto, along with further details on how the various items have been restated. 37